New from Prudential: Level Term Life to Age 65

Buying term life insurance can be confusing at the best of times, but it needn’t be. With a bad economy and newer products available, term life insurance can look particularly attractive if you’re trying to save money – but now more than ever, it’s important to ask your insurance agent the right questions upfront.

Assuming you’ve already decided to buy term insurance and know why you’re doing so; now, the most important question is, “How much do I need?”

“A lot of people just pick a number out of thin air, but that’s a poor way to go about it,” said Jack Dewald, president of Agency Services, Inc., Memphis, Tenn. Dewald is a past chairman of the Life and Health Foundation for Education, a non-profit organization dedicated to helping consumers understand insurance.

“Some agents will do a very elaborate needs analysis,” said Dewald. “The next question is ‘how long should it run for?’ and ‘what happens if the need exceeds the term?’”

Buyers should also ask about the provisions for renewing policies and converting them to whole life, should that become necessary, says Dewald. But of course, you may not know in advance whether or not you’ll need to renew or convert, which means that “a periodic reevaluation is in order,” Dewald says; though a change in policy provisions may mean a change in requirements or premium price because of your advancing age.

Buyers often have fears about any potential physical risks that may have disqualified them for coverage. Such fears are often unwarranted, adds Dewald.

“Only 15 percent of those who apply for life insurance qualify for the very top rates, but that doesn’t mean the other 85 percent are refused coverage,” said Dewald. “Almost everybody can get it. You may not get the absolute best rate, but you can get it.”

Here’s where an experienced agent who handles multiple insurers comes in handy. Here are six Questions you should ask your agent:

1. How long does my physical exam take and can it be done at my place of business?

Unless you get a policy as part of your employee benefits, a short physical exam is often required when you sign up, especially if you’re older. According to the LIFE Foundation, this usually takes about 30 minutes and includes checking blood pressure levels, collecting blood and urine samples, and asking questions about your current and past health status.

If a nurse is performing the examination, you might be able to have the exam performed at home or place of business; however, some policies require a physician’s exam, which means a visit a doctor’s office or clinic. Know your options when discussing the examination with your insurer.

2. Can I update my beneficiaries online and can I name a contingent beneficiary in case my primary beneficiary outlives me?

The beneficiary of your policy is the person or legal entity – a trust, estate, organization or institution – that you name to receive the death benefit (don’t name your pets: they’re not persons). Some insurers now allow you to change the beneficiary online, which makes updating insurance policies much easier.

3. What about contestability?

Policies usually name the circumstances under which the death benefit wouldn’t be paid. These may vary by state, but usually, if a policy has been in effect for two years, it can’t be contested or revoked unless you stop paying premiums. If you die within two years after purchasing a life insurance policy, the company has the right to fully investigate your death; whereas after two years, the insurer typically must pay the full death benefit. Keep in mind, an insurer may also refuse to pay the claim if you misled, misrepresented or withheld important information about yourself when you applied for the policy. Ask your agent if that is subject to the contestability period limit. Also ask what happens if the death benefit claim is denied. (Usually, the amount of the premiums paid is returned to the beneficiary, probably with interest.) Find out the details for your state. For more about contestability clauses, read: “What is a life insurance contestability clause?”

4. What are my options for paying premiums?

Your term life policy may have level premiums or renewable premiums. A level premium means you pay the same rate for the length of the policy, whereas a renewable premium rate fluctuates. Do you have that choice? There’s usually a limit on the age at which you can renew a term life insurance policy (usually age 75, but there are some policies that go up to the age of 95). What are the limits in your area, and will renewal involve new requirements?

5. How can I be impacted by a lapsed policy?

Being late with a premium payment may not be as awful as you think; most term life policies allow a 30- to 31-day grace period for you to make the payment before the insurer cancels your policy. Still, that one-day difference can be key. If your policy is canceled, getting it reinstated may require a new contestability period, a higher premium, and/or another physical exam. Moreover, a lapsed policy could end up as a black mark on your credit report, and the insurer may hesitate to cover you again. Know the fine points of your own policy. And if you’re having trouble paying the premium, look for other ways to save on your policy instead of just canceling it. Talk to your agent and find out what the procedure is for a lapsed policy.

6. Can I still get an ROP term life insurance policy?

Contrary to popular belief, some insurers still offer return-of-premium or ROP term life policies. It’s just what it sounds like; after the term ends, the premium paid is returned to you. However, premiums for such policies are higher than those for regular term policies. Similarly, converting to a whole life insurance policy will also cost significantly more because part of your premium will be diverted to the cash value account. Moreover, you have most of the same probable trade-offs that you would with reinstating a lapsed policy (new exam, new contestability period, etc.). This may or may not apply to renewing a term life policy. For more about ROP insurance policies, read: “The benefits of return of premium life insurance.”

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Consumer Insurance Guide SM provides a wide selection of originally-authored articles and expert advice targeted to the self-directed insurance shopper. Our mission is to provide consumers with useful, money-saving information on all things having to do with making sound insurance purchase decisions.